NCSHA Urges HUD to Eliminate “Hold Harmless” Policy for Section 8

The National Council of State Housing Agencies (NCSHA) sent a letter on November 4 to HUD, urging the Department to “eliminate the hold harmless policy for Section 8 assistance and other direct rental subsidy programs, or to postpone any decision to eliminate the hold harmless policy until there has been more opportunity to consider and address its potentially negative consequences.” The letter, signed by Garth Rieman, director of housing advocacy and strategic initiatives, was sent in response to a September 14 Federal Register Notice (FR-5323-N-01) asking for comments on ending the “hold harmless” policy in calculating income limits under Section 8 of the U.S. Housing Act of 1937.

The policy was initially adopted to ensure that Multifamily Tax Subsidy Projects (MTSPs) would not be subject to income limit and rent decreases when the data underlying income limits indicated decreases. The Housing and Economic Recovery Act of 2008 changed the tax code to protect existing MTSPs from decreases in income limits and rents, should HUD decide to discontinue this policy. However, HUD noted that maintaining artificially high income limits may have a negative impact on other federal programs.

Rieman said that while “NCSHA shares HUD’s goals of making sure its income limits reflect real area incomes as accurately as possible and its resources are focused on those who need them most,” eliminating the hold harmless policy may negatively affect properties with rent and income policies tied to HUD’s Section 8 income limits. “In FY 2010, we expect Section 8 income limits to decrease across the country,” said Rieman. “Properties funded with HOME, state housing trust funds, Community Development Block Grants, and other sources contractually tied to Section 8 income limits, including many HUD-insured properties, would face serious cash flow issues, if they remain tied to these limits.”
The NCSHA is concerned that if assisted housing sites cannot manage cash flow, they won’t be able to provide affordable housing. And, lenders and investors might be less inclined to invest in those properties, especially if rental income declined after their initial investment.

The NCSHA letter also addressed the organization’s concern on how eliminating hold harmless would affect the management and monitoring of sites with subsidies tied to Section 8 income limits, and subsequent additional administrative burdens.

The NCSHA is recommending that HUD establish one set of limits (without the hold harmless policy) for Section 8 assistance and other direct rental subsidies, and another set of limits (with the hold harmless policy) that applies to other assisted housing programs.